Case Examples of Collusive Bidding by Contractors

South East Asia, Road Projects

From 2000 to 2003 small groups of local construction companies rigged contract awards in road rehabilitation projects in collusion with government and project officials.  To execute the schemes, the project officials would, among other things, deliberately fail to announce or publicize requests for bids in a timely manner, refuse to sell bid documents to outside companies or find trivial or invented reasons to disqualify those companies that were able to bid.  Senior government officials would then choose the winning bidder, or “champion,” from among those allowed to compete after private negotiations with all of the companies.  The designated losing bidders would submit deliberately higher priced or non-responsive bids to allow the winner to inflate its prices sufficiently to fund the necessary bribes and enjoy handsome profits.

The designated winner often was a shell company set up solely to bid on the project in which project or government officials held undisclosed interests.  Such firms would subcontract all of work to smaller firms, often “losing bidders,” at far lower prices.

The scheme was detected when investigators noted that all of the bid securities – commitments by the bidders that they would perform the contract if selected – submitted by the different bidders were purchased at the same bank on the same day, indicating they were all purchased by the same person.  Other indicators included losing bids that were an exact percentage apart (because they were all generated by the winning bidder by multiplying its winning bid), and a pattern of the winning bids falling just under the threshold of acceptable bids, with the losers being over the thresholds.

South Asia, Pharmaceutical Supply Contracts

At the suggestion of the government, for several years four major international pharmaceutical companies, operating through local subsidiaries, had divided the market for medicines and medical supplies purchased by the government under projects financed by international donors. The conspirators met quarterly in the capital city to agree on which company would provide which items and set highly inflated prices.

A US pharmaceutical firm saw the very high prices that the government was paying and submitted a bid at a much lower price.  The bid prompted concerted protests by the consortium members, who complained that the company was not qualified to supply the drugs because of local laws and regulations.  Eventually, under pressure from the lead donor, the low bid was accepted.

Such unwanted interference was, of course, a cause for concern by the four consortium members, who responded by inviting the low bidder to their next quarterly meeting.  There they invited the interloper to join the conspiracy, which it did, and thereafter five companies divided the spoils and claimed the big profits.

South East Asia, Transportation Project

A review of bids submitted by several local construction companies for six bid packages on a $300 million roads improvement project revealed strong circumstantial evidence of collusion, including:

False and forged bid securities submitted by three of the bidders on four of the bid packages.  False bid securities are a strong indicator of collusion.  This is because the security will be called only from the winning bidder, meaning that companies that know they are going to lose can avoid the expense of purchasing a real security.

Inconsistent disqualifications across bid packages.  Certain firms were disqualified from one package for deficiencies such as previous non performance or inadequate experience, but were allowed to bid on other almost identical packages.  Such actions, of course, indicate that the procurement officials were involved in the collusion scheme.

Inflated engineers estimates.  The estimates were substantially higher than virtually all of the bids received and estimates provided by other experts during the investigation.  Higher estimates provide a platform for the acceptance of artificially inflated bids and again indicate the involvement of procurement officials.

Inconsistent unit prices across bid packages (submission of “ping-ponged” bids).   On numerous occasions the same bidder quoted significantly different unit prices for nearly identical line items across several bid packages, sometimes lower to enable them to win the award, sometimes much higher to enable a competitor to win.   Such bids are a common and strong indicator of collusion.

South East Asia, Transportation Project

Bidders in two rounds of bidding on another transportation project in South East Asia agreed to submit non-competitive bids to ensure that a designated company, pre-selected by government officials, would win at an artificially high price. The winner compensated the designated losers for their cooperation. Non-cooperative companies were threatened with exclusion from future contracts, once again indicating the involvement of government procurement officials.

Two companies ignored the inducements and threats and attempted to submit real bids.  The first was pressured to amend its legitimate bid and raise its price by 40%.   An employee of the second company was kidnapped en route to submitting a bid and detained at a local hotel until the bid opening session was completed.  The winning bidder graciously paid the non-cooperative bidders, including the company of the kidnapped employee, a respectable sum in compensation.

Similar intimidation tactics, in which “muscle men” hired by the designated winning bidder have forcibly prevented other companies from submitting bids have been seen in cases in Bangladesh, India, Vietnam and Cambodia.   Such tactics are often associated with local political parties.

Europe, Construction of International Agency Headquarters

An international agency conducted a special audit to determine if there was collusion in the award of a contract to construct a new 300 euro headquarters building for the agency.  The construction was to occur in a region in which reputed wide-spread collusive bidding by contractors was believed to inflate construction costs by at least ten percent.

The audit found that only three firms submitted bids for the attractive project.  Two of the bidders were large, well-known local companies; the third was a much smaller, privately held firm that appeared to be unqualified for the contract.

The two public firms submitted realistic bids that closely tracked the estimated costs.  The third, privately held company submitted an incomplete bid at a much higher price.  The higher price was almost entirely due to a grossly inflated quote for two line items to provide fire safety equipment.  The private company was given an opportunity to “clarify” its bid, which appeared to be an error, but declined to do so.

The contract was awarded to the publicly-held low bidder.  Almost immediately thereafter it subcontracted most to the work to the highest priced third bidder, the private company.

Further investigation revealed that the international agency had twice previously hired the private company to renovate other smaller properties occupied by the agency, and that the   company had paid kickbacks to the agency management in exchange for both contracts.

The international agency re-wrote the special audit report to exclude the above findings and concluded that there was no evidence of collusion or misconduct in the construction of the new headquarters.

Eastern Europe, Sale of Privatized Assets

An Eastern European government privatized a number of previously owned government owned assets, including valuable commercial real property worth billions of dollars located in the center of the capital city.

A group affiliated with local organized crime elements organized a scheme to bribe local privatization agency officials and commercial court personnel to approve the sale of the properties to them at very low prices.  The privatization agency and court officials agreed to withhold public notice of the auctions and to appraise the properties at unreasonably low values.  Other potential bidders were threatened or otherwise excluded.  A member of the conspiracy who was arrested on other charges was killed while in prison, presumably to prevent his potential cooperation.

The conspirators promptly resold the properties to actual investors from Western Europe at much higher, fair market prices.